Unemployment hit a high of 10% in October 2009 and came down to 9.5% in mid-2010. Since then it has fallen to 8.1% and then back up to 8.2%, down to 7.8% and back up to 7.9%. Months later it sits at 7.6% with job creation too mild to expect any meaningful improvement. With a natural unemployment rate (the rate at which we consider the economy to be fully employed) in the area of 5%, current unemployment is dramatically higher (52% higher) than we would like it to be -- and it is only as low as it is because so many people have dropped out of the labor force. If labor force participation had remained constant, current unemployment would be over 11%.
The
question often asked: We had enormous
amounts of stimulus spending, why haven’t we seen more, well, stimulus? Here
are the most likely reasons:
·
Much
of what has been spent was stimulus in name only. Former Chief of Staff Rahm
Emanuel said it best: “Never waste a crisis.” In other words, hard times
present an opportunity to achieve a political agenda that would not be possible
otherwise. As a result, we have seen a lot of spending on earmarks and social
programs and hasty projects like this one and this one. Calling this stimulus does not make it so. It is
very difficult to spend wisely so quickly. It takes many months (years,
actually) to plan and execute good projects (public or private). After much
hype and celebration, even President Obama later had to concede that there is
no such thing as a “shovel ready project”.
· New
hiring tends to come later on in any expansion.
Businesses typically wait until they are confident that the expansion is
well underway before hiring back workers. Labor is the most expensive input in
any production process and businesses will get as much as they can out of their
current employees before they are willing to incur the expense of expanding
their workforce.
· Uncertainties
about new taxes and mandates on business seem to be putting a drag on economic
growth and employment. It is tough enough for businesses to add new employees
in the early going of an expansion but in this expansion, businesses have more
to worry about than usual. Because of the massive and unprecedented amounts of
government spending, government has also been doing massive and unprecedented
amounts of borrowing and the public debt has exploded. This is causing firms
(and citizens in general) to worry about how high taxes will have to go to
service all this new debt. Expectations of higher future taxes can curb hiring
by businesses as well as spending by consumers. A recent survey by the U.S.
Chamber of Commerce of small businesses (the primary engine of economic growth)
confirms this. 78% of responders report that taxation, regulation and
legislation from Washington make it harder for their business to hire more employees.
74% say the recent health care law makes it harder to hire more employees.
The
result is less hiring than we usually see coming out of a recession.
While the “stimulus” has helped relieve some of the pain of the recession, it hasn’t done much for permanently
improving the economy. This kind of spending during the Great Depression had
the same results (though this last recession was light years from being as bad
as the Great Depression) While there was modest improvement during the 1930s, it
wasn't until World War II that the Depression came to an end.
The bottom line is that despite mountains of rhetoric, ideology,
and deficit spending, not all that much economic stimulus has actually taken
place (which is why a THIRD stimulus package -- the jobs plan -- has been
proposed). Meanwhile, the enormous debt that has been racked up will all have
to be repaid – much of it by those who have not yet been born! This is often referred to as The War on Kids, and indeed it is. How noble of us to live beyond our
means and let our posterity pick up the tab.
For
unemployment rates, see:
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LNS14000000
For labor force participation rates, see:
For
monthly job creation, see
MM
